GBP/JPY eases back below 157.00 as overbought sterling struggles to keep up with peers as dollar dives

• GBP/JPY has eased back under the 157.00 level on Wednesday after rejecting an attempted push above 157.50.
• As the dollar dives post-US CPI data, overbought sterling has been struggling to benefit as much as its G10 peers.

GBP/JPY ran out of steam when it attempted to rally above the 157.50 level and test last week’s 157.77 high on Wednesday and has since subsided back below the 157.00 level. At current levels in the 156.80s, the pair is trading lower by a very modest 0.2% on the day and is back to trading flat on the week. Wednesday’s pullback from earlier session highs marks a failure of the pair to break out of its recent 156.00-157.80ish range that it has been locked within over the last week.

The main focus in FX markets on Wednesday has been on the dollar’s large post-in line with expectations US Consumer Price Inflation report decline, with less focus than usual on the yen crosses. Despite gaining more than 0.5% on the day versus the buck, sterling is one of the worst G10 performers. The yen is sat closer to the middle of the G10 performance table, up 0.75% on the day versus the buck. The more risk-sensitive AUD, NZD, NOK and SEK are all up more than 1.0% on the day against the dollar. GBP’s relatively poor on-the-day performance may be explained by the fact that, before today and over the last few weeks, GBP has been one of the best performing G10 currencies and may have entered overbought territory, incentivizing profit-taking.

Since bottoming out in December underneath 149.00, GBP/JPY has rallied over 5.0%. Compare that to EUR/JPY, which is up under 3.0% since its December lows, USD/JPY, which is now up under 2.0% and CAD/JPY which is up closer to 4.5%. Of the major G10 currencies, GBP’s performance has been particularly impressive as of late as fears about Omicron and its economic impact have subsided, thus allowing GBP to finally benefit from BoE hawkishness (the bank started lifting rates in December). Midway through last week, GBP/JPY’s 14-day Relative Strength Index rose above 70 (signaling overbought conditions) and though it has since dropped back under, the pair may still be suffering from the effects.